The business behind the show

Netflix partner Level 3 accuses Comcast of anti-competitive behavior

A company that acts as a middle man between content companies and Internet service providers is accusing Comcast Corp., the nation's largest broadband provider, of anti-competitive behavior.

Level 3 Communications Inc., a Colorado-based provider of fiber-based communications services, said problems with Comcast started just over a week after Level 3 announced it had struck a deal with Netflix Inc. to be the content delivery network (CDN) behind that company's broad push into the distribution of content online including movies and popular TV shows. Comcast said it would "demand a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast's customers who request such content," said Thomas Stortz, Level 3's chief legal officer. Level 3 said it initially resisted the fee, but then agreed to it.

"With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally determined toll is paid –- even though Comcast’s subscribers requested the content," Stortz said, adding that Comcast's behavior "demonstrates the risk of a ‘closed’ Internet, where a retail broadband Internet access provider decides whether and how their subscribers interact with content."

Comcast Senior Vice President for External Affairs and Public Policy Counsel Joe Waz fired back that what Level 3 wants is to "pressure Comcast into accepting more than a twofold increase in the amount of traffic Level 3 delivers onto Comcast's network -- for free."

“Level 3 has misportrayed the commercial negotiations between it and Comcast," Waz said. "This has nothing to do with Level 3's desire to distribute different types of network traffic ... Level 3 is trying to undercut its CDN competitors by claiming it's entitled to be treated differently and trying to force Comcast to give Level 3 unlimited and highly imbalanced traffic and shift all the cost onto Comcast and its customers."

Netflix, which is still best known for mailing rental DVDs to its customers, signed up with Level 3 last month as part of its digital push. Netflix, which has almost 17 million subscribers, recently unveiled a low-cost, online-only plan that it expects will dramatically boost its Web business. About 66% of Netflix subscribers have used its streaming service at least once.

The spat comes not only as Comcast tries to close on its deal with NBC Universal, but also at a time when the Federal Communications Commission is determining what its role will be in regulating the Internet. The FCC may address whether it will advocate for some form of so-called net neutrality, a principle that calls for all Internet traffic to be treated equally.

“Level 3 believes Comcast’s current position violates the spirit and letter of the FCC’s proposed Internet Policy principles and other regulations and statutes, as well as Comcast’s previous public statements about favoring an open Internet," Stortz said. “While the network neutrality debate in Washington has focused on what actions a broadband access provider might take to filter, prioritize or manage content requested by its subscribers, Comcast’s decision goes well beyond this."

There have been calls from media watchdogs that conditions be put on Comcast's pending deal to acquire control of NBC Univesal to ensure that it does not favor its own content and distribution over potential rivals both via cable and the Internet. Comcast has argued that there is no such need for safeguards, particularly if they would only apply to it and not to the rest of the media industry.

Netflix declined to comment on Level 3's accusations against Comcast. Besides Level 3, Netflix also has relationships with two other content delivery networks, Akamai and Limelight, neither of which have publicly raised issues with Comcast. Both have compensation agreements with Comcast that Level 3 tried to resist, a person familiar with the matter said.